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LABEL： Healthcare and Medicine , Compliance business ,
On September 5th and September 8th, Hainan Free Trade Port successively welcomed two heavyweight policies to relax the supervision of imported drugs, medical devices, and the medical industry. They were the "tailored" and separately applicable "Notice on the" zero tariff "policy for drugs and medical devices in Hainan Free Trade Port" (Caiguan [2024] No. 21) issued by the Ministry of Finance, the National Health Commission, the General Administration of Customs, the State Administration of Taxation, and the National Medical Products Administration, and the "Notice on Expanding Opening Pilot Work in the Medical Field" (Shangzi Han [2024] No. 568) issued by the Ministry of Commerce, the National Health Commission, and the National Medical Products Administration, which designated Hainan Free Trade Port as one of the nine pilot areas.The new policy has already had a response in the market. According to Caixin News Agency, the Hainan concept stocks in the two cities have been growing against the trend recently. On September 12th, several pharmaceutical concept stocks in Hainan Free Trade Port hit the daily limit up. We believe that the implementation of the new policy requires a process, but the advantage of Hainan Free Trade Port is that the combination of old and new policies may cause a stronger "biochemical reaction" than a single policy, bringing new opportunities for industry development.
This article will analyze the policy arrangements of free trade ports since 2018 based on the interpretation of two new policies, sort out the original policy framework, analyze and optimize the combination, and seek new ideas and opportunities for industry development.
1、 Interpretation of the Core Content of Two New Policies
（1） Notice on the "Zero Tariff" Policy for Drugs and Medical Devices at Hainan Free Trade Port (Caiguan Shui [2024] No. 21)
It is explicitly stated that before the operation of the entire island's customs clearance, qualified medical institutions, medical education institutions, and pharmaceutical research institutes within the Hainan Boao Lecheng International Medical Tourism Pilot Zone (hereinafter referred to as the "Lecheng Pilot Zone") that import the drugs and equipment specified in this notice and use them in accordance with regulations may be exempt from import tariffs and import value-added tax. Specifically, as follows:
（2） Notice on the Pilot Work of Expanding Opening Up in the Medical Field (Shang Zi Han [2024] No. 568)
The main content includes two points:
Notice No. 568 of the State Council on August 13, 2023, regarding the opening up of the medical biotechnology field, it was mentioned in the "Opinions on Further Optimizing the Foreign Investment Environment and Increasing the Attraction of Foreign Investment" issued by the State Council on August 13, 2023, that "under the premise of complying with relevant laws and regulations, accelerate the landing and production of foreign investment projects in the biopharmaceutical field, encourage foreign-invested enterprises to conduct clinical trials of overseas marketed cell and gene therapy drugs in China in accordance with the law, and optimize the application procedures for the registration of drugs produced overseas that have been transferred to domestic production.
2、 Pre policy preparation and sorting of Hainan Free Trade Port related to the new policy
The interpretation of the two new policies is a superficial literal meaning, 'what you see is what you get'. However, if we want to fully explore the impact of the two policies on the layout of enterprises in the pharmaceutical and medical industries of Hainan Free Trade Port, we need to combine the context of the policies laid out in the early stage of Hainan Free Trade Port regarding the import of licensed pharmaceutical and medical equipment.
（1） Policy on the urgent need for imported licensed drugs and equipment in clinical practice
In 2018, the State Council successively decided to suspend the implementation of the "Regulations on the Supervision and Administration of Medical Devices" and the "Implementation Regulations of the Drug Administration Law of the People's Republic of China" in the Lecheng Pilot Zone. Medical institutions in the pilot zone will be delegated to the Hainan Provincial People's Government for the approval of a small number of drugs (excluding vaccines) and medical devices that have been approved for market overseas but have not yet been registered domestically due to clinical needs.
Afterwards, the People's Government of Hainan Province, authorized by the State Council, successively issued management regulations on urgently needed imported clinical drugs and medical devices in Lecheng Pilot Zone, and integrated them into the "Management Regulations on Urgently Needed Imported Clinical Drugs and Medical Devices in Lecheng Pilot Zone" (Qiongfu [2023] No. 16), which will be implemented from May 1, 2023. Afterwards, Qiongyao Jianxie [2023] No. 66 "Guidelines for the Application of Urgent Imported Drugs and Medical Devices for Clinical Use" simultaneously updated the application requirements for the import of licensed drugs and medical devices.
At present, medical institutions in the pilot zone urgently need to import a small number of drugs (excluding vaccines) and medical devices that have been approved for market overseas but have not yet been approved for registration in China due to clinical needs. These applications are subject to approval by the People's Government of Hainan Province and are used for specific medical purposes in designated medical institutions; And after obtaining the drug and medical device registration certificate, the product will no longer be approved for import as a clinically urgent imported drug or medical device.
（2） Policy on the Use of Real World Data for Drug and Device Registration Materials
The "Integrated Innovation Reform Plan for the System of Boao Lecheng International Medical Tourism Pilot Zone of Hainan Free Trade Port" issued in September 2020 clearly proposes to create a new model of using clinical real-world data for drug and device registration in China, and explore the transformation of licensed drug and device clinical data used in Lecheng Pilot Zone without Chinese registration and approval into real-world evidence for registration and approval in China. Subsequently, from 2021 to 2023, corresponding implementation measures will be introduced for the application, communication, and other aspects of conducting real-world research on drugs and medical devices in Lecheng Pilot Zone, clarifying that applicants can coordinate with the management department for subsequent application and registration before conducting real-world research.
Qiongfu [2023] No. 16 "Management Regulations for Clinical Urgent Imported Drugs and Medical Devices in Boao Lecheng International Medical Tourism Pilot Zone of Hainan Free Trade Port" once again clarifies that the real-world data generated by clinical urgent imported drugs and medical devices that meet the relevant requirements for drug and medical device registration and application in China can be used as application materials by registration applicants.
3、 What new opportunities does the policy combination provide for the development of Hainan's imported pharmaceutical and equipment industry
（1） Can unregistered medical devices in China be used in foreign-owned hospitals and accumulate real research data
1. Domestic imported drugs and devices that are urgently needed in clinical practice can theoretically be used by foreign-funded hospitals registered and established in Lecheng Pilot Zone
According to Qiongyao Jianxie [2023] No. 66 "Application Guidelines for Clinical Urgent Imported Drugs and Medical Devices in Boao Lecheng International Medical Tourism Pilot Zone of Hainan Free Trade Port", applicants only need to be medical institutions holding a "Medical Institution Practice License" in the pilot zone, and domestic and foreign ingredients are not restricted. According to the Notice on Carrying out Pilot Work to Expand Opening up in the Medical Field (Shang Zi Han [2024] No. 568), foreign-owned hospitals established should theoretically be able to apply for the use of domestically unregistered imported drugs and equipment urgently needed in clinical practice under appropriate conditions.
2. The data obtained from real-world research conducted in foreign-owned hospitals can be used as registration materials for application
According to Qiongfu [2023] No. 16 "Regulations on the Management of Clinical Urgent Imported Drugs and Medical Devices in Boao Lecheng International Medical Tourism Pilot Zone of Hainan Free Trade Port", if it meets the relevant requirements for drug and medical device registration and application in China, the registration applicant can use it as application materials, and there are no restrictions on the internal and external investment of enterprises.
If the above policies are refined and implemented, the tendency and convenience of foreign-owned hospitals to use internationally advanced drugs, equipment, and treatment plans will provide more clinical application scenarios and market demand for multinational pharmaceutical companies, which may accelerate the promotion and application of new drugs and equipment in China. Multinational pharmaceutical companies can collaborate with wholly foreign-owned hospitals to conduct clinical trials and drug research and development, utilizing the hospital's high-quality medical resources and professional medical teams to improve research and development efficiency and success rates. They can also use real-world data generated by urgently needed imported medical devices as registration materials in China, shortening the process of importing medical devices into the domestic market.
（2） Under what circumstances can duty-free import of drugs and equipment be achieved
1. In theory, enterprises can import registered domestic drugs and equipment tax-free in the pilot zone without limit on quantity and type
According to Article 11 of the "Regulations on the Management of Urgent Imported Drugs and Medical Devices in the Boao Lecheng International Medical Tourism Pilot Zone of Hainan Free Trade Port" (Qiongfu [2023] No. 16), domestically registered imported drugs and medical devices are not within the scope of urgent import and do not require approval from the Hainan Provincial People's Government. In addition, Caishui [2024] No. 21 does not explicitly limit the quantity and types of imported drugs and medical devices registered domestically. In contrast, a small number of categories of drugs that are currently restricted to cross-border e-commerce retail imports in other regions of China can be subject to comprehensive cross-border e-commerce taxes, which has a significant advantage in reducing the operating costs of import entities in the Boao Lecheng Pilot Zone in Hainan.
2. Theoretically, the drugs and equipment required for experiments in universities and research institutes can also be exempted from taxes
The tax-free import entities are not limited to medical institutions, but also include universities and research institutes. Regarding this point, the Notice on Supporting Import Tax Policies for Scientific and Technological Innovation during the 14th Five Year Plan Period (Caiguan Shui [2021] No. 23) in China currently stipulates a certain range of tax exemption policies for scientific research supplies. However, the applicable conditions are complex, and currently, scientific research supplies in Hainan Free Trade Port are not included in the scope of "zero tariff for production and self use equipment". In theory, Caiguan Tariff [2024] No. 21 can to some extent solve the import tax problem of imported drugs and equipment used by medical education institutions and pharmaceutical research institutes in Lecheng Pilot Zone.
3. Qualified wholly foreign-owned hospitals and foreign-invested enterprises can also enjoy tax exemption policies
According to the Notice on Carrying out Pilot Work to Expand Opening up in the Medical Field (Shang Zi Han [2024] No. 568), wholly foreign-owned hospitals and foreign-invested enterprises engaged in the development and application of human stem cell and gene diagnosis and treatment technologies are not excluded from the policy, and theoretically may also enjoy the above-mentioned tax exemption policies (provided that they obtain pilot qualifications).
（3） Can the development and application of stem cell and gene diagnosis and treatment technologies be carried out in foreign-owned hospitals
The subject that can engage in the development and application of human stem cell, gene diagnosis and treatment technologies under the Commercial Letter [2024] No. 568 is a "foreign-invested enterprise", and foreign-owned hospitals that have obtained legal person qualifications generally belong to for-profit medical institutions with enterprise nature. Therefore, in theory, foreign-owned hospitals established throughout the Hainan Free Trade Port can carry out the development and application of human stem cell, gene diagnosis and treatment technologies.
At the same time, foreign-owned hospitals established in Lecheng Pilot Zone may also apply multiple policies such as "urgently needed imported licensed drugs and equipment for clinical use", "real world data for drug and equipment registration", and "tax exemption for imported drugs and equipment of pilot units" to accelerate the registration process and lower the development and application costs of unregistered stem cells and genetic diagnostic drugs and equipment in China.
If this policy is implemented, it will also comply with the 24 measures to stabilize foreign investment issued by the State Council on August 13, 2023, which encourage foreign-invested enterprises to conduct clinical trials of overseas marketed cell and gene therapy drugs in China in accordance with the law, and optimize the application procedures for the registration of drugs produced overseas transferred to domestic production.
4、 Compliance recommendations regarding the application of combination policies
In the process of laying out Hainan Free Trade Port and combining preferential policies for pharmaceutical equipment and pharmaceutical industry enterprises, we have the following compliance suggestions:
（1） The application of policies by enterprises shall be subject to the opinions of relevant departments
The above policy application analysis is based on our understanding of the current public policy content and cannot replace the understanding and grasp standards of relevant management departments in specific operational practices. Therefore, enterprises need to closely contact the relevant park management bureau and provincial regulatory departments of Hainan Free Trade Port to understand the operational requirements for policy implementation, and also need to combine the supporting measures for the subsequent introduction of the above policies by national ministries and provincial regulatory departments in Hainan. In the early stage of policy implementation, we may adopt a "case by case" and "special handling" approach, but we hope that specific processes and standards can be introduced as soon as possible to make operations more routine.
（2） Some policies still need to be connected to bridge the applicable 'last mile'
At present, some policy combinations still lack coherence in certain aspects. For example, Shangzi Han [2024] No. 568 has opened up the establishment of "wholly foreign-owned hospitals", and Qiongfu [2023] No. 16 "Regulations on the Management of Urgent Imported Drugs and Medical Devices in the Boao Lecheng International Medical Tourism Pilot Zone of Hainan Free Trade Port" does not restrict the internal and external investment of medical institutions. However, Article 6 stipulates that "designated medical institutions shall... obtain a medical institution practice license in accordance with the law and have the ability of a tertiary Grade A hospital..." "Wholly foreign-owned hospitals" are relatively new things, and the standards and requirements for determining their ability to be a tertiary hospital need to be clarified by regulatory authorities as soon as possible.
For example, we have noticed that the scope of drugs covered by Caiguan Shui [2024] No. 21 includes "drugs (excluding vaccines) and medical devices that have not yet been approved for registration by China according to relevant regulations of the State Council, but have been approved by the People's Government of Hainan Province for import and use in the pilot zone"; However, in the Announcement of the State Administration for Market Regulation on Matters Related to the One time Import of Reference Drugs for Research Use during the Development Process in 2016 and the Announcement on Matters Related to the One time Import of Reference Drugs for Clinical Trial Biological Products in 2018, there are differences between the scope of imports by drug research and development institutions or drug production enterprises that are not registered in China and Caishui [2024] No. 21. For medical education institutions and pharmaceutical research institutes, which are closer in nature to drug research and development institutions, further clarification is needed from relevant departments on how to apply for the above regulations during the import application process.
（3） Enterprises must combine regulatory compliance requirements when applying combination policies
For example, according to the regulations of Shangzihan [2024] No. 568, foreign-invested enterprises planning to pilot projects should comply with China's requirements on human genetic resource management, drug clinical trials (including international multicenter clinical trials), drug registration and marketing, drug production, ethical review, and other related management procedures. Related to this, the revised and effective "Regulations on the Management of Human Genetic Resources" on May 1, 2024, have specified corresponding regulatory requirements for activities involving human genetic resources by foreign units. If foreign-invested enterprises involve the processing of human genetic resources in the process of carrying out cell and gene therapy businesses, they need to comply with the above regulatory requirements.
For example, Caiguan Shui [2024] No. 21 clarifies that duty-free drugs and medical devices sold by medical institutions to patients are final products for personal use and cannot be resold, taken away, or delivered out of the designated area. This regulation differs from the application conditions of the "Management Measures for the Removal and Use of Urgent Imported Drugs for Clinical Use in Boao Lecheng International Medical Tourism Pilot Zone of Hainan Free Trade Port", which allows patients from medical institutions in the pilot zone to remove licensed drugs from the medical institution when leaving the hospital. The principle is not to exceed 4 weeks of use, and in special circumstances, it may not exceed 12 weeks. Relevant parties should pay attention to avoiding behaviors that violate customs supervision regulations such as reselling, purchasing, smuggling duty-free drugs, medical devices, etc., which may trigger administrative or even criminal responsibilities.
epilogue
In the process of sorting out the policy framework, we can see that after nearly 6 years of layout planning, the regulatory policy network for imported drugs and medical equipment and related industries in the free trade port has gradually taken shape: through the unique policies granted by the state to Hainan Free Trade Port and combined with the pilot arrangements launched by China in multiple regions, the advantages of Hainan Free Trade Port in terms of liberalization and facilitation of imported drugs and medical industry regulation have been formed, bringing new opportunities for the layout and development of enterprises.
In the future, we look forward to further expanding the "Lecheng Research and Use+Haikou Production" model of Hainan Free Trade Port, and further releasing policy dividends to more enterprises and regions on the island. We will continue to pay attention to the regulatory policy changes of Hainan Free Trade Port in various fields, and provide opinions and suggestions for regulatory departments and enterprises to promote policy implementation and application.